Academic Medical Centers
Joining forces with community providers for broad benefits and positive outcomes
As market, financial, and regulatory challenges continue, how can Academic Medical Centers remain relevant and successful in the transforming health care marketplace?
Academic Medical Centers in a shifting health care landscape
Academic Medical Centers (AMCs) are among the US hospitals with the strongest name recognition and reputation.1 Yet even they have not been immune to the forces transforming the larger health care marketplace. Like the majority of US health systems, AMCs are consolidating and broadening their relationships with other hospitals, physicians, and other care providers in the community. These relationships can take many forms—mergers and acquisitions (M&A), affiliations, collaborations, partnerships, joint ventures (JVs), or other deal structures. Such AMC-led consolidation can have broad benefits and positive outcomes for the AMC, community providers, and consumers.
AMC-driven M&A has been common the past few years,2 as have affiliations, collaborations, partnerships, and JVs. Note that consolidation can be vertical (AMCs acquiring post-acute providers) or horizontal (AMCs acquiring acute care hospitals and physicians); this paper focuses on horizontal consolidation. Deloitte’s analysis of M&A datasets, interviews with AMC executives, and case studies highlight several AMCs and their strategies for navigating the changing health care marketplace via consolidation. The results show that building relationships with community health systems and physicians is part of AMCs’ strategy to remain relevant and be successful in the future.
AMCs’ goals and outcomes for consolidation include:
- Performance improvement (financial, operational, and clinical), including cost reduction
- Revenue diversification
- Inclusion in payer networks and protection and expansion of referral sources
After analyzing M&A data from 2007-2013, Deloitte found that AMC-led consolidation produced considerable benefits. For AMCs that purchased at least one other hospital during 2009 and 2010, their core location:
- Performed better overall financially. The AMC’s earnings before interest, taxes, depreciation, and amortization (EBITDA) improved post-acquisition. The improved EBITDA performance likely is a result of increased case mix index (CMI).3
- Reduced expenses. After an initial rise in expenses, likely due to post-merger costs, operating expense per patient day two years post-acquisition were reduced.
- Increased CMI. Post-acquisition, AMCs treated more higher-acuity patients, who typically have higher payments from payers due to treatment complexity. This likely is a result of shifting patients to the right care setting (community vs. AMC) based on case complexity.
Like any organization, AMCs may experience cultural, financial, and bureaucratic challenges to consolidation. However, AMCs that are currently developing their M&A strategies can learn from their counterparts highlighted in this paper.
1 Kim Krisberg, “Network Adequacy Standards of Insurance Exchanges Raise Concerns for Academic Medical Centers,” Association of American Medical Colleges, accessed April 20, 2015.
2 Deloitte analysis of Modern Healthcare M&A Trends Database, 2007-2014.
3 Case mix index (CMI) is a relative value assigned to a diagnosis-related group of patients in a hospital and represents their acuity and complexity. Adjusting for CMI mitigates differences across hospitals for patient risk, acuity, and complexity and allows comparison. A higher CMI means more complex and higher acuity patients.